By Caroline Valetkevitch and Shashwat Chauhan
Nov 10 (Reuters) - US Treasury yields jumped and Wall Street stocks fell on Thursday after a hotter-than-anticipated US inflation reading boosted odds that the Federal Reserve will hike interest rates by a half percentage point next month.
The dollar gained against major currencies, while gold fell sharply.
US consumer prices increased more than expected in October, with the Consumer Price Index rising 0.4% last month after advancing 0.6% in September, according
to official data. Economists polled by Reuters had forecast the CPI climbing 0.3% over the month.
In addition, core CPI — which strips out volatile food and energy prices and is often referred to as "underlying inflation" — landed at 0.3%, higher than the 0.2% consensus.
Odds the Fed may raise rates half a point at its December policy meeting jumped after the data, with Fed Governor Christopher Waller saying earlier in the day in London that a core reading of 0.3% for October would prompt him to consider a half point hike at the Fed's December 8-9 meeting.
The Fed more typically hikes or cuts rates in 25 basis point increments.
Lower oil prices recently have helped ease some of the inflation concerns that have been on investors' radar since the US-Israeli war with Iran erupted at the end of February.
"It’s not just headline CPI that is too high, but the oil shock has seeped into core," said Brian Jacobsen, chief economic strategist at Annex Wealth Management in Menomonee Falls, Wisconsin.
"The Fed is probably now more concerned about the idea of AI crowding out other activity and pushing up prices. Forget about oil. The new Fed worry is the cost of hiring plumbers and electricians."
The 2-year note yield, which typically moves in step with Fed interest rate expectations, was last up 19.28 basis points at 4.74%. It is on track for its biggest one-day jump since the April 2025 "tariff tantrum," when US President Donald Trump announced trade levies on imports from around the world.
The yield on benchmark US 10-year notes rose 12.76 basis points to 4.988%.
Dallas Fed President Lorie Logan said the US central bank needs to deliver at least two more quarter-point rate increases to bring down inflation.
Wall Street's decline follows a sharp rally on Monday. Stocks had bounced back from a selloff last week tied to worries about increased AI regulation in the wake of a Democratic sweep in the US midterm elections. The tech-heavy Nasdaq closed 2.7% higher on Monday.
On Tuesday, the Dow Jones Industrial Average fell 302.62 points, or 0.57%, to 52,087.13, the S&P 500 fell 53.31 points, or 0.71%, to 7,496.63 and the Nasdaq Composite fell 227.31 points, or 0.90%, to 25,025.83.
MSCI's gauge of stocks across the globe fell 2.35 points, or 0.21%, to 1,106.21.The pan-European STOXX 600 index rose 0.4%.
Earnings reports due this week from tech companies including CoreWeave, a barometer of investor anxiety over AI, will be another test for markets as investors fret about the cost of the AI buildout and its profitability.
Meanwhile, Anthropic's blockbuster IPO is set to give the company a valuation of up to $1.4 trillion, slightly lower than some investors' expectations amid a recent cooling in investor appetite for AI, setting up a defining test of Wall Street's faith in the boom it helped ignite.
OIL, GOLD FALL; DOLLAR GAINS
Gold prices also fell after the inflation data, with spot gold down 2.3% at $4,043.73 an ounce, while the dollar gained.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.6% to 102.29, with the euro down 0.56% at $1.1156. Against the Japanese yen, the dollar strengthened 0.5% to 158.68.
Oil prices hit fresh two-month lows after US officials downplayed the need for additional military action against Iran. US crude was down 1.39% at $85.67 a barrel and Brent fell to $90.69 per barrel, down 2.03% on the day.
(Reporting by Caroline Valetkevitch in New York and Shashwat Chauhan in Bengaluru; additional reporting by Ankur Banerjee in Singapore; Editing by DJ Yap, Lincoln Feast, Peter Graff, Joe Bavier and Jonathan Spicer )
